Formerly known as Blue Ribbon Sports, Nike, Inc. is an American multinational corporation that manufactures high quality sport wears and sport gears. It was founded in the year 1964 by Phil Knight and Bill Bowerman who initially started out as a distributor for a Japanese shoemaker, Onitsuka Tiger (O’Reilly, 2014). Their mission is “To Bring Inspiration and Innovation to every athlete” and is famous for their slogan “Just Do It”. Nike is one of the world’s biggest suppliers of athletic shoes and apparels (“Nike Inc (NKE) Business Description – CSIMarket.” n.d). The company designs, develops and sells a variety of products and services which helps enhance an athlete’s performance. In addition, they also cater to the general public in which the products are meant to be worn casually, for fashion or for leisure. Nike sells through more than 1,000 owned retail stores globally, through an e-commerce site and through thousands of retail accounts, independent distributors and licensees (“Nike Inc (NKE) Business Description – CSIMarket.” n.d). Nike’s footwear and apparel products are manufactured outside of United States as well, while equipment products are produced both in United States and overseas.
In the United States of America (USA), Nike has enjoyed and benefited a significant amount of business growth and opportunities. According to Thomas Bush (2016), USA has terrific policies for growth which are extremely valuable to Nike. These policies include low interest rates, well arranged international tax agreements and stability in the currency exchange. The policies implemented are possible because of the stability in government in USA. However, like every company that manufactures and sell physical goods, Nike is always subjected to changes in tax and manufacturing laws whenever there are any. In addition, political conflict can also affect a company’s business. Different countries have different political conditions and they are not as favourable for Nike as compared to its home country (“PEST/PESTLE/PESTLE analysis of Nike by Cheshnotes,” 2017). Based off a chart by OpenSecrets, Nike spent 1.4 million dollars on lobbying expenditure (“Lobbying Spending Database – Nike Inc, 2017 | OpenSecrets,” n.d.). The purpose of doing so is to influence policy makers in that particular country so as to ensure business is lucrative and smooth sailing. Therefore, understanding the political condition of a country is important so as to determine the impact it has on Nike.
Nike’s economic status is dependent on the status of the global economy. A declining economy is detrimental to Nike because it will result in the fall off customers’ purchasing power which causes consumers to seek for lower end products and result in the need of cutting down on endorsement deals, marketing budget and manpower. In 2009, Nike minimized their global workforce by 5 percent and countered the decline in customers’ purchasing power by cutting costs, streamlining operations and reducing marketing, which in turn, rose their market shares by 3.3 percent (Reuters, 2009). This goes to show Nike is capable of adapting to a declining global economy while ensuring that the company remains profitable at the same time.
One of the reasons why Nike is so successful is because of its capability to identify its social demographics and appeal to its targeted demographics. Although different countries have different social cultures, there are still similar shared beliefs, attitudes and trends (“PEST/PESTLE/PESTLE analysis of Nike by Cheshnotes,” 2017).
Nike mainly target consumers from ages between 18 to 40 years of age. Their objective is to equip teens with athletic apparels in sports like football and at the same time, teens who wishes to look athletic and fashionable at the same (“18 Incredible Nike Demographics Segmentation – BrandonGaille.com,” 2015). Nike has enjoyed huge success in its targeted social demographics because their products are stylish, up to trend and provide the performance desired by consumers. Therefore, with such a large social demographic that Nike has, it has plenty amount of opportunities to prosper and grow their business.
In today’s day and age, any individual that own a smartphone can easily have access to information on their fingertips. According to ‘Statista’, the number of smartphone users is expected to reach 2.87 billion (“Number of smartphone users worldwide 2014-2020 | Statista. (n.d.). With such a staggering amount of smartphone users, it is an opportunity for Nike to integrate mobile technologies such as mobile apps and online tools for their consumers (“Nike Inc. PESTEL/PESTLE Analysis ; Recommendations – Panmore Institute,” 2017). Integrating mobile apps in smartphones allows Nike’s consumers to be updated on the latest products and services, and promotions. This is a good marketing strategy by Nike to push their products to consumers in the fastest way possible. However, the rapid change in technological advances can also hinder Nike’s growth and development. With a rapid change in technological advances, Nike is also forced to increase their product development efforts and increase their research and development(R&D) budget (“Nike Inc. PESTEL/PESTLE Analysis ; Recommendations – Panmore Institute,” 2017). Therefore, technology can either aid or hinder Nike’s business performance.
When it comes to the environment, Nike cares deeply and has play their part in protecting the environment. For Nike, showing the world their environmental efforts give them the opportunity to enhance their brand image. Nike has a Reuse-A-Shoe program whereby they reach out to consumers who has already worn out their pair of shoes and send it back to them for recycling (“What Is Reuse-A-Shoe Program? | Nike Help, n.d.). They recycle these shoes and give them a new life through Nike Grind. Nike Grind is a material created through recycled shoes and Nike’s recycled surplus manufacturing materials (“Learn About Nike Grind”, n.d.). These Nike Grind materials are then integrated into new Nike products such as footwear, sports surfaces like running tracks, playgrounds and sport apparels (Nike Grind | More Performance. Less Waste,” n.d.). This component of the PESTLE analysis shows Nike’s opportunities to improve the environmental impact that they can have on their business.
Different countries have different laws and different legal framework. This means that Nike have to comply to the different laws and regulation that a country has when entering a new business market. One legal issue that Nike encountered in the past was the sweatshop controversy. According to Nisen (2013), Nike became known as a symbol of abusive labour practices. In 1991, Nike urged its contractors to move to countries like Indonesia as prices and labour has increased and organized in Korea and Taiwan. Problems arose when activist Jeff Ballinger published a report regarding low wages and inhumane working conditions in Indonesia. It was reported that Indonesian workers whom had worked for Nike’s subcontractor were earning 14 cents an hour which violated Indonesia’s minimum wage laws. This eventually tarnished Nike’s reputation and as an effort to rectify this problem, Nike announced that they would raise the minimum age of workers and considerably increase monitoring and code of conduct. This goes to show that not adhering to legal laws in a foreign country can affect Nike’s business performance.
Porter’s Five Forces analysis
Competitive rivalry within an industry
As a multinational corporation that manufactures sport gears and apparels, Nike has many competitors in its industry. Some of its competitors include Adidas, Puma, Reebok and many more. Adidas is the top competitor of Nike and similar to Nike, both compete head to head on the basis of footwear, clothing and accessories (Bhasin, 2018). This result in fierce competition between both in the sports market and Nike has to constantly focus on its marketing, and product development in order to have a competitive advantage over Adidas. Thus, competitive rivalry within an industry for Nike is considered high.
Threat of new entrants
Nike does not have to worry about threats of new entrants as it already has strong brand identification and recognition. Furthermore, new entrants have little to no effect on affecting Nike’s market share in the global market. In addition, it requires high capital requirements and investment in order to compete in the sports market and building a brand image from sketch is a difficult task. Therefore, threats of new entrants are considerably low for Nike.
Threat of substitutes products or services
Threat of substitutes products or services is something Nike has to be concern about and monitor strategically. Since Nike has many competitors such as Adidas, Puma, Reebok, etc, it is easy for consumers to purchase products similar to what Nike offers. Some factors that may contribute to consumer’s decision of buying other similar products are pricing, quality and availability. In order for Nike to ensure that the threat of substitute products and services remain low or moderate, Nike has to constantly come up with better marketing, quality products and better pricing in order to stay ahead of its competitors and have an edge over them.
Bargaining power of Suppliers
As for Nike, the bargaining power of supplier is very low. Nike has a large network of manufacturing factories which are run by independent contract manufacturers and it has over 700 factories in 42 countries (Market Realist, n.d.). If a supplier is unhappy with the terms and conditions that Nike offers, Nike can always easily find another supplier to outsource their products. However, little to no suppliers would reject Nike as it has a large economic scale and it would greatly benefit the suppliers in terms of revenue. Therefore, the bargaining power of suppliers is considered low and has very little effects on Nike.
Bargaining power of Customers
The bargaining power of customers is considered low to moderate for Nike. The extent to which this force is moderated, it is determined the quality and marketing of Nike and its products. Nike has established a strong, loyal customer base because of the performance and design of its products and services (“Porter’s Five Forces Analysis of Nike,” 2017). In addition, the switching cost of for Nike’s customers are low as well. Therefore, the bargaining power of customers is ranges between low and moderate.
Four management recommendation
Corporate Social Responsibility (CSR)
One of the ways in which Nike can better manage their company is through corporate social responsibility (CSR). Through CSR, Nike can boost their public image and also contribute to help make the environment better. One example of Nike’s CSR participation is innovating their materials development and management to concentrate the impact of climate change on the supply chain and reducing its environmental impact (Newell, 2015). By doing so, it shows the world that Nike is not just a multinational corporation that sells sport gears and apparels but also a corporation that cares deeply about the contributing back to the world like everyone does.
As technology is ever-changing and fast paced, Nike has to constantly keep up with the latest technology that is revolutionizing today’s market. In order to compete with its competitors, Nike has to have an edge over their competitors technologically in terms of their clothing, mobile apps, footwear products and services. One example is the introduction of FlyKnit footwear by Nike. FlyKnit is a material produced by Nike that is entirely made of polyester yarn in a precisely knitted construction. It provides a featherweight, form-fitting and virtually seamless shoe upper which makes the user feel like there is nothing on their feet (“WHAT IS FLYKNIT | Nike Help,” n.d.). This sort of innovations provides them an edge over their competitors and can help Nike better their business.
Nike was being scrutinized by the world when the sweatshop controversy came to light. It resulted in protests and a small percentage of consumers boycotting Nike. In order for Nike to better handle such situation from arising again, Nike has since announced to be more transparent in their code of conduct and adhere to international human rights and wage laws. This will help Nike better manage their business in terms of the brand image.
Competitive rivalry within industry
As Nike has fierce rivals and competitor in its market, Nike can better manage this problem by investing more into R&D so as to create more innovative products and marketing their products. Product differentiation will allow Nike to stand out among its competitors and having an edge over your competitors over a particular product or a range of products can help Nike better in terms of capturing a wide range of consumers that other competitors cannot do.
Despite Nike’s setbacks on the legal side of things and having fierce rivals to compete with, Nike has managed to establish themselves as the best sport apparels and sport gears company in the world. Nike has managed to address its sweatshop controversy problems and has since put in numerous efforts to be more transparent in their code of conduct. Nike has also been the global leader in the footwear market for years and are well ahead of their competitors like Adidas and Puma. With every obstacle that comes along its way, Nike has proven that they are able to rise above and overcome their problems. Nike will definitely remain and be recognized as the leading giant in its industry for many years to come.